Executive Summary
Global efforts to decarbonise industries, build sustainable infrastructure, and address climate and nature-related challenges require unprecedented investment. As governments rely increasingly on private capital to finance this transformation, financial markets need credible frameworks that distinguish sustainable, transitional, and unsustainable activities.
Sustainable finance taxonomies – frameworks for classifying activities according to sustainability criteria – have emerged as a critical tool in mobilising capital to support the transition to more sustainable economies. By providing clear, science-based definitions of sustainability for different activities, taxonomies standardise market understanding, facilitate capital allocation towards sustainable activities and align market incentives with sustainability objectives.
In this paper, we:
- Provide an overview of the taxonomy landscape
- Outline use cases detailing how taxonomies can support the transition
- Summarise commonalities in structure and characteristics across taxonomies
- Explore how taxonomies are evolving
- Look at how taxonomies can be leveraged as part of a broader sustainability toolkit
The analysis provides a foundation for understanding the taxonomy landscape as a whole and complements WFE’s companion paper, Classifying Capital: Taxonomies Built to Support Transition Finance - Part 2, which builds on this foundation to examine how transition pathways are integrated into taxonomy design and how such frameworks can support credible decarbonisation and economic transformation.
Key Messages
Exchanges: Taxonomies help exchanges promote sustainable investment opportunities with confidence:
- taxonomies enable the creation of taxonomy-referenced listing segments/labels, indices, benchmarks exchange-traded funds, derivatives etc based on objective criteria;
- taxonomies feed into data and transparency initiatives, and support market integrity.
Policymakers: Taxonomies are an essential tool for sustainable finance. To be effective, they should:
- be science-based and regularly updated to reflect technological and policy developments;
- balance ambition with usability, providing clear, sector-relevant guidance;
- promote interoperability across jurisdictions; and
- be integrated with broader national strategies.
Investors: Taxonomies facilitate the identification of sustainable opportunities, supporting:
- comparability across markets and asset classes;
- a common classification language that reduces search/verification costs and greenwashing risk;
- improved portfolio alignment with sustainability and net-zero objectives; and
- enhanced trust in disclosures and products marketed as being sustainable.
Issuers: Taxonomies help clarify how activities can qualify as sustainable or transitional, enabling:
- access to new sources of sustainable finance;
- clearer communication of sustainability strategies to investors; and
- stronger internal governance on environmental and social performance.